A New Keynesian model is extended with hiring costs that rise in labour market tightness and with real wage rigidity, so that unemployment exists and moves. Under the paper's utility specification the …
PublishedClassicJournal of Money, Credit and BankingPublished Jan 2007
The standard New Keynesian model implies that stabilising inflation also stabilises the welfare-relevant output gap -- a property the authors name the "divine coincidence" and trace to the absence of …